Tuesday, August 07, 2012

Big Data is a big deal for newspapers

Just when you thought you had a handle on digital publishing, here comes a paradigm shift that will be more counterintuitive and more disconcerting for newspapers than all the technological innovations that have come before.

The disruptor du décade is called Big Data and it involves the collection, slicing and dicing of fragments of information that can be rapidly assembled to identify subtle macro trends or create actionable profiles that precisely target unique individuals.

The vastness of the opportunity is characterized in this quick paragraph from IBM:

“Every day, we create 2.5 quintillion bytes of data — so much that 90% of the data in the world today has been created in the last two years alone. This data comes from everywhere: sensors used to gather climate information, posts to social media sites, digital pictures and videos, purchase-transaction records, and cell phone GPS signals, to name a few.”

Throw in who individuals are, what they read, when they are in a particular place, where they shop, why they buy and how they feel about public policy and you have a wealth of valuable data.

The commercial potential for Big Data is the reason Facebook achieved a record high valuation of $104 billion when it began selling its shares on the stock market. Even though Facebook’s shares tumbled in the aftermath of its clumsily managed IPO, the company continues to gather more personal information about people and their friends than any platform yet devised.

Don’t be misled by the critics who pounced on recent articles questioning Facebook’s potency as an ad medium. While General Motors famously acknowledged immediately before the IPO that it was scrapping its $10 million Facebook ad budget and a Reuters poll found that only 1 in 5 users admit to responding to Facebook ads, the skeptics are missing the point.

Facebook’s success, or lack thereof, will not depend on selling banner advertising, whose pricing and efficacy will necessarily degrade as the supply of page views expands exponentially. Facebook will make its bones, if there are bones to be made, by innovating ways to commercialize the torrents of data it continues to accumulate.

Can’t imagine what the winning Big Data app will be? Don’t feel bad. Facebook might not know, either. But the $4 billion in cash collected at the IPO window equips the company to fund any number of science fair projects and business pilots. Eventually, Facebook – or perhaps someone tinkering in an IBM lab or a dorm room littered with empty Red Bull cans – will come up with the way to turn the growing nuggets of data into gold.

There is precedent in Silicon Valley for retroactively lashing a revenue model to a company already in progress. When Google was launched in 1996, the founders had no idea how they were going to make money with the speedy and accurate search engine they had devised. It wasn’t until late 2000 that Google began selling the ads that now accompany its search results.

Google’s AdSense system creates an audience of one when a user types a few key words into the search box, instantly triggering up to a dozen links to merchants who bid for the right to post ads related to the targeted expression. Although merchants pay only for the limited number of times someone clicks on an ad, the system worked well enough to deliver the preponderance of the $36 billion in revenues that Google reaped in 2011 (a sum equal, btw, to 1.5 times the combined print and digital ad sales of all the newspapers in the land).

Impressive as Google’s do-it-yourself system is in terms of performance, productivity and profitability, we someday will look back on it as a quaint, if not to say crude, form of targeted advertising. Because the keyword system responds only to the estimated location of and the keywords chosen by the user, it cannot leverage all the variables, context and nuance that a robust Big Data profile could provide.

If Google’s currently dominant digital advertising engine could be surpassed by faster, better and cheaper ways of connecting buyers and sellers, where does that leave newspapers?

To date, publishers have applied the same business model to everything from print and the web to the latest mobile and social platforms: Build the biggest possible audience.

This approach, unfortunately, is exactly at odds with the point of Big Data, whose goal is to connect individuals with information specifically tailored to them. The quicker Big Data applications develop, the faster the large but un-targetable audiences traditionally delivered by newspapers will become an anachronism, thus limiting their utility to consumers and value for advertisers.

While most publishers aren't equipped to be first movers in Big Data, they should be paying attention – and ready to jump into partnerships that prevent them from being left behind.

3 Comments:

Good article and 100% correct. If there is a new model out there for newspapers it will be in BigData (BD).

BD forces newspapers to understand their consumers better (not something that we have traditionally been good at... our pulpit has been a bit to high and our monopoly a bit to long.

At the beginning of this year we adopted a "DataFirst" digital strategy. Being DataFirst means: "Collecting, analyzing, understanding and using data to create better customer (users, readers & advertisers) experiences - and improve our business insights."

More and better data means we understand our customers better. If we understand our customers better, we can deliver more relevant content - both Editorial and Advertising.

If we deliver more relevant Editorial and Advertising... We will make more money via increased traffic, more effective advertising and being relevant in the lives of our customers.

Good article and 100% correct. If there is a new model out there for newspapers it will be in BigData (BD).

BD forces newspapers to understand their consumers better (not something that we have traditionally been good at... our pulpit has been a bit to high and our monopoly a bit to long.

At the beginning of this year we adopted a "DataFirst" digital strategy. Being DataFirst means: "Collecting, analyzing, understanding and using data to create better customer (users, readers & advertisers) experiences - and improve our business insights."

More and better data means we understand our customers better. If we understand our customers better, we can deliver more relevant content - both Editorial and Advertising.

If we deliver more relevant Editorial and Advertising... We will make more money via increased traffic, more effective advertising and being relevant in the lives of our customers.

This is really what Big Data is about:http://www.nytimes.com/2012/08/10/business/supermarkets-try-customizing-prices-for-shoppers.html?_r=1&hpIn a nutshell: Supermarkets are testing systems in which, based on what the supermarket knows about you, your behavior, your preferences, you get discounts off the posted prices.

It's basically custom-tailoring a marketing program for each individual shopper.

But it also illustrates that merchants don't need the newspaper as middleman anymore. While newspapers are still trying to translate traditional media directly to some kind of digital shape (iCircular), the supermarket world is thinking not just, "Why do we still need newspapers to deliver digital circulars?" but: "Why does it have to look like a circular at all? Why can't we tailor the digital equivalent of a circular individually for every shopper, and adjust it on the fly as she's walking up and down the aisles?" (Supermarkets always think about shoppers as "she".)

And why can't every other kind of merchant learn to do the same thing, from big box stores to Ma and Pa, entirely without the intermediation of newspapers? What can newspapers possibly add to the equation?

About Me

Alan D. Mutter is perhaps the only CEO in Silicon Valley who knows how to set type one letter at a time.
Mutter began his career as a newspaper columnist and editor at the Chicago Daily News and later rose to City Editor of the Chicago Sun-Times. In 1984, he became No. 2 editor of the San Francisco Chronicle.
He left the newspaper business in 1988 to join InterMedia Partners, a start-up that became one of the largest cable-TV companies in the U.S.
Mutter was the COO of InterMedia when he moved to Silicon Valley in 1996 to join the first of the three start-up companies he led as CEO.
The companies he headed were a pioneering Internet service provider and two enterprise-software companies.
Mutter now is a consultant specializing in corporate initiatives and new media ventures involving journalism and technology. He ordinarily does not write about clients or subjects that will affect their interests. In the rare event he does, this will be fully disclosed.
Mutter also is on the adjunct faculty of the Graduate School of Journalism at the University of California at Berkeley.